Home / News / Australia’s velocity of money a positive

Australia’s velocity of money a positive

News

While the ramifications of the Eurozone’s debt concerns have heightened in recent weeks and with the euro finally coming in for a correction, the global investment risk research firm Check Risk has given Australia a better report in its latest weekly risk assessment.

Check Risk produced an update on the velocity of money in the Australian economy and said that it is “painting a pretty positive picture despite economists turning negative on the economy”.

The velocity of M3, the broadest measure of money supply, has been increasing since the end of 2011. The rate of acceleration has slowed but it is still growing, Check Risk says, and the Reserve Bank still has plenty of room to move with regard to monetary policy.

  • “Perhaps the biggest problem for Australian equity and bond markets is that the AUD is still not a buy. The AUD is likely to suffer from the double whammy of accommodative RBA monetary policy and weaker demand from China.

    “Ultimately, investors in Australia are going to search for yield again … and given the corrections in the equity market and the pause that a weaker AUD has caused, the risk outlook for dividend-yielding stocks and government bonds is improving. It may be that these prices improve driven by domestic demand, as international investors are likely to remain wary as long as the AUD remains volatile.

    “Global market risks are on the rise again having seen a swift correction at the end of May. Equity markets can move higher against this backdrop, however, the gap between bond and equity market risk perception should not be ignored.”

    Check Risk says that a major risk is developing with bond and currency investors taking a very different view of risk to equity market investors, which was a pattern that developed in 2011. Such gaps in risk awareness tend to be asymmetric and can only be resolved by one or other group of investors being correct.

    In 2011 US Treasury Bills went negative 11 times, which had until then been a one-in-30-year event. This month the spread between bond volatility and equity market volatility has widened to levels not seen since the fourth quarter of 2010.

    “Of greater concern is that the rate of change has been similar to precedents seen in 2007 and 2008,” Check Risk says.




    Print Article

    Related
    ’60/40 is being resuscitated’: fixed income down but not out

    Year-to-date, fixed income markets are about as bad as equities. But Michael Leithead, fixed income and senior portfolio manager at EFG Asset Management (EFGAM), is more positive than he’s been “in a long time.” “We’re at a point now where the market has priced in quite a lot of global policy tightening, and that restores…

    Lachlan Maddock | 24th Jun 2022 | More
    ‘It’s a business about character’: Kudu hunts deals Down Under

    New York-based Kudu Investment Management has returned to Australia in hopes of pulling off a repeat of its 2020 deal with Channel Capital. “The asset management business is an absolutely beautiful business, to the mind of anybody involved in it. It’s rock solid; it has high margins; and the people are interesting,” says Charlie Ruffel,…

    Lachlan Maddock | 24th Jun 2022 | More
    APRA grows concerned on consolidation, flags new standards

    The wave of consolidation racing through the superannuation industry is now raising eyebrows at the prudential regulator. With the massive amounts of FUM being devoured, some funds are suffering indigestion. “This may manifest at the industry level at the point of transfer in a SFT, for example where an administrator has a backlog of transfers…

    Lachlan Maddock | 24th Jun 2022 | More
    Popular
    1
    News and OneVue go live with brightday
    Investor Strategy News | 11th Jan 2015 | More
    2
    Perrignon off to HK with Credit Suisse
    Investor Strategy News | 22nd Dec 2013 | More
    3
    Sports betting as a new asset class
    Investor Strategy News | 3rd Jul 2016 | More
    4
    BlackRock ahead of consensus with bullish view
    Investor Strategy News | 14th Jan 2017 | More
    5
    HSBC talks re-open old NAB wound
    Lachlan Maddock | 9th Mar 2022 | More
    6
    Statewide seeds bespoke Apostle fund
    Lachlan Maddock | 23rd Mar 2022 | More